Tuesday, October 18, 2005

Uncertainty as Brazil Starts Oil License Auction

The Brazilian government has opened bidding for licenses to drill for oil and natural gas in some 1,134 cites, 697 of which have never been explored. This auction is being held in an attempt to increase international interest in the natural resources of Brazil. The main fear of many internal investors is that regulatory uncertainty in market for oil, and the domination of Petrobras, will have a negative impact on outside and domestic firms. Although the licenses are handed to bidders through the ministry of energy, the ministry’s power has decreased over the years as Petrobras rose as the industry leader.

What effect will these licenses, especially the licenses for the 697 unexplored areas, have on the international market for oil? Will these licenses have the effect of decreasing the price of oil, due to an increase in supply, or will the market remain stagnant?

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